In maritime transport, Alliances are cooperative agreements between companies or shipping lines aimed at enhancing their economic capacity and improving operational efficiency. This is achieved by sharing resources such as vessels, terminals, or equipment, ultimately increasing the range of services these companies can offer.
The Historical Background of Alliances
Initially, they were known as shipping conferences. The first shipping conferences began in 1869 with the UK-Calcutta Conference. With the opening of the Suez Canal, steamships emerged, bringing key advantages like faster voyages and more predictable arrival times, which greatly boosted efficiency. This development pushed sailing ship owners to lower freight rates to stay competitive.
This is where the value of shipping conferences emerged, as they brought together shipping lines operating within the same geographic region. The main purpose was to set tariffs or shipping rates to protect the maritime transport market and prevent destructive competition. These shipping conferences continued until 2006, when the European Union voted to ban them and stop price-fixing for routes to and from EU member states to encourage competition among shipping lines. However, starting in April 2010, the EU allowed consortia, groups of shipping lines that work together to provide sea services, including sharing space on each other’s ships.
Moreover, these maritime conferences were initially expected to conclude in 2020. However, in the United States, they are still exempt from antitrust laws and have been permitted to operate without legal restrictions on price-setting.
Maritime alliances have been a strong tool for overcoming global industry crises. These alliances have helped make better use of the size and space of ships. Interestingly, the alliances didn't decrease competition among shipping lines; in fact, they increased it because they focused on operational cooperation rather than commercial agreements.
Members realize they will get a reasonable profit.
Operators are maximizing the use of their vessels.
Regular sailing enables shippers to make their future trade plans.
Importers do not need to keep large stocks.
What are the disadvantages of maritime conferences?
1. Member Commitment to Conference Rates: When shipping companies join a specific conference, they must adhere to the freight rates set by that conference. This means that during times of low freight rates, members cannot take advantage of moving vessels that might offer better rates, limiting their ability to adapt to market fluctuations.
2. Limited Benefits for Large Shippers: In cases of large shipments, shippers are expected to have the ability to negotiate for better rates. However, within the conference system, prices are determined centrally, which restricts this negotiating power and makes it difficult for shippers to secure better terms.
3. Trade Imbalance: The conference system can lead to imbalances in shipments between certain directions. For instance, there may be large volumes of shipments in one direction, while other directions need more shipments. This imbalance negatively affects shipping efficiency and costs.
4. Reduced Competition: By diminishing competition, the conference system forces shippers to pay higher prices than they might in a more competitive environment. If multiple shipping companies were competing in the market, the competition would likely result in better prices and improved services, which is different within the conference system.
The mid-1990s marked a turning point in establishing strategic alliances between shipping lines. These alliances were mainly formed in response to the introduction of large container ships Panamax-class (post-Panamax), which required broader operational networks to remain competitive. By 1997, four main strategic alliances provided about 70% of services on major East-West trade routes. (It started with shipping conferences and evolved into shipping alliances, although some conferences still exist in certain countries.).
Major Maritime Alliances
2M Alliance:
Parties: Maersk and MSC.
Overview:
The alliance was established in 2015 to enhance the efficiency of shipping operations through vessel-sharing arrangements on major trade routes such as the Pacific, Atlantic, and Asia-Europe.
HMM did not officially join the alliance but cooperated with it for some services in 2017.
In 2023, Maersk and MSC announced the termination of the 2M alliance by 2025, which will lead to significant changes in the allocation of vessels and maritime shipping operations.
Ocean Alliance:
Initially, the alliance was known as Ocean 3 and started in 2015:
Parties: (CMA CGM - China Shipping - United Arab Shipping Company).
Some parties separated in 2016, leading to the emergence of a larger and stronger alliance known as the Ocean Alliance.
Parties: (CMA CGM - OOCL - Evergreen - COSCO ).
Overview: The alliance was established in April 2017 to expand market reach and increase operational efficiency by enhancing cooperation among member companies. In February 2024, the members agreed to extend the agreement until 2032, which enhances customer confidence in the continuity of the alliance.
Overview: This alliance aimed to expand and strengthen shipping networks between Asia and Europe, as well as on transatlantic and intra-Asia routes. The alliance ended in 2017 with the formation of new alliances:
APL joined Ocean Alliance after being acquired by CMA CGM.
HMM became a strategic member of THE Alliance.
NYK Line joined THE Alliance after merging with MOL and K Line to form a new entity named Ocean Network Express (ONE).
Hapag-Lloyd has joined THE Alliance.
OOCL joined the Ocean Alliance following its acquisition by COSCO.
The alliance originally started as the "CKYHE Alliance," including Yang Ming, K Line, Hanjin, COSCO, and Evergreen.
In April 2017, it was rebranded as "THE Alliance," comprising (K Line MOL-- Yang Ming - Hapag- Lloyd - NYK- UASC).
By 2018, the alliance focused on key members like ONE, Yang Ming, and Hapag-Lloyd.
HMM joined them in 2020.
Overview:
THE Alliance focuses on improving services along East-West trade routes, offering more efficient and flexible solutions.
In January 2024, Hapag-Lloyd announced plans to leave THE Alliance to form a new partnership with Maersk under the name "Gemini Cooperation.
Premier Alliance:
Parties: HMM-ONE and Yang Ming.
Overview:
This is a new alliance in the container shipping industry, involving three major companies.
It is scheduled to commence operations in February 2025, following significant changes in the maritime transport sector, such as the dissolution of the 2M alliance between Maersk and MSC.
Overview: The "Gemini Cooperation" alliance between Maersk and Hapag-Lloyd will officially commence on February 1, 2025. The alliance aims to enhance maritime transport services through 29 main routes and 28 inland transport services, covering regions such as Asia, Europe, and the United States. The alliance is intended to be long-term, with no specified end date, and there are plans to resume operations in the Red Sea once conditions stabilize.
The alliance seeks to exceed operational efficiency by more than 90% and provide better shipping options for customers using a fleet of approximately 340 vessels. Moreover, one of the primary goals of this alliance is to adopt modern technologies and clean fuels to protect the environment.
Acquisitions and Mergers That Reshaped Maritime Alliances
In recent years, the shipping industry has experienced significant mergers and acquisitions, leading to substantial changes in the maritime transport market. These strategic moves reflect how major companies evolve in response to global challenges and opportunities. Especially after the announcement of the bankruptcy of Hanjin Shipping in 2016. Here are some notable examples of acquisitions within the shipping lines sector:
In 2016, CMA CGM, one of the world's leading shipping companies, acquired APL (American President Lines) through its parent company, Neptune Orient Lines (NOL). This move aimed to enhance CMA CGM's global presence and increase its operational capacity, positioning it among the top three container shipping lines worldwide.
Maersk's Acquisition of Hamburg Süd
In 2017, Maersk Line, regarded as the largest shipping company in the world, made a bold move by acquiring Hamburg Süd, a prominent German shipping company, in a deal valued at approximately $4 billion. This merger expanded Maersk's market share and integrated Hamburg Süd's services into its network, helping to improve operational efficiency.
COSCO's acquisition of China Shipping, followed by its acquisition of OOCL.
In 2016, COSCO acquired China Shipping, forming one of the largest shipping companies globally to enhance efficiency and increase market share. In 2018, COSCO Shipping Holdings completed its acquisition of Orient Overseas International Limited (OOCL), bolstering its position in the global shipping market. This deal enhanced COSCO's fleet capabilities and expanded its service range, making it more competitive.
Hapag-Lloyd Acquisition of UASC
In 2017, Hapag-Lloyd acquired the United Arab Shipping Company (UASC). This Acquisition was part of Hapag-Lloyd's strategy to increase its fleet size and improve services across multiple trade routes, allowing it to compete more effectively with major companies.
A merger of K-Line, NYK, and MOL to Form "ONE"
In a unique move, three major Japanese shipping companies—K Line, NYK Line, and Mitsui O.S.K. Lines (MOL)—merged to form a new entity known as Ocean Network Express (ONE) in 2017. This partnership aimed to create a more competitive entity that offers comprehensive services in the global container shipping market.
Benefits of Maritime Alliances on Freight Forwarders or Customers:
1. Reduce shipping costs
Maritime alliances help reduce shipping costs and expand coverage of shipping routes. This benefits freight forwarding companies, as they can obtain better rates and higher-quality services. For example, if two companies are offering the same price, but one is part of a maritime alliance, customers are more likely to choose that company due to the greater security and stability it provides.
2. Contingency Plans in Maritime Alliances: Maritime alliances create contingency plans to protect their members in case of financial difficulties faced by any of the participating companies. They also prepare plans to address major crises such as natural disasters, economic recessions, or pandemics. This flexibility makes alliances a safe long-term option, enhancing trust among members.
3. Choosing Operators Based on Free Time: When several companies are part of the same alliance, their performance levels tend to be similar. In this case, you can choose the operator based on the available "free time," which is the period during which containers can remain at the port without incurring additional charges. This choice helps reduce extra costs, contributing to the economic viability of the operation.
Shipping lines, whether large or small, benefit from the consolidation and sharing of capacity, which enhances the range and quality of logistics services.
These alliances also provide broader coverage of trade routes, as each shipping line has its own unique set of customers and different shipping routes.
Moreover, these alliances help reduce operational costs, such as port and fuel expenses, allowing for competitive pricing for customers.
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